The Hidden Importance of IRAs for Married Women

I was very excited to see my first article published in the esteemed publication, Retirement Weekly, a MarketWatch premium newsletter published by Dow Jones & Co. I have been invited to write about women’s issues around retirement, and since it’s “IRA Season”, the first article is about the hidden importance of having IRAs for married women. It appeared in the March 10, 2017 edition.

The article is below for your reading pleasure, or you can link directly to the Retirement Weekly article online. Retirement Weekly is a subscription-based newsletter, chocked full of terrific, timely retirement information, in-depth discussions about retirement rules, and coverage of the most current topics impacting retirement savings and plans. There is something for everyone and at every stage in the retirement cycle. You can find the free-trial and subscription information here.

We stand on the porch looking out at the view. There’s our future, our retirement years just ahead. With mixed emotions, we look back remembering both the wonderful memories and the hard times that made us tougher, stronger and more patient. As we look forward, there is often a pause and a question, “After all I’ve accomplished for my family, why do I feel like such a failure?” Could it be the fact that we have been summed up on a single sheet of paper that shows we are worthless? Not as a person, but quite literally, as worth less. As in not having much money, or any money, in our own name as we move into retirement.

The Reality of an At-Home Career

This is the reality many married (or previously married) women experience when looking at their Social Security statement showing every year of their earnings history. Often, women see that they have earned little income over the past 30 or 35 or 40 years. In many cases, their entire work history is filled with zeroes.

Another reality check comes when reviewing the family balance sheet of assets and investments. In many cases women see only a “his” column rather than “his” and “hers” columns filled with assets owned by each spouse. She often sees a large “his” column compared to a small “her” column. As a result, many women feel unbalanced about the balance sheet. They see that they are penniless on paper or entitled to only a small amount of income.

This is a searing moment of truth when they realize they are entering retirement without a dime in their own name, with little to no Social Security earnings, and no individual retirement accounts. Of course, women have access to money in joint accounts with their husbands or partners, but they don’t own their own money and therefore don’t control the money.

Is this a problem? While every situation between couples is different, it can be quite a surprise to see how the scales are tipped in one direction. Hard-working stay-at-home moms, career homemakers, and women who made less income during their working years still have time to change their futures.

There is a Solution: the IRA

Enter the underrated, undervalued, underutilized Individual Retirement Accounts or IRAs. These accounts can be incredibly valuable to women, but not in ways we often measure value. There are “hidden values” to IRAs that don’t fit into typical financial assessments.

Many of us don’t know enough about IRAs, misunderstand them, or actively choose not to save for retirement in them because they don’t offer enough tax breaks. Plus, many financial advisors don’t encourage the use of these retirement savings vehicles because they tend to be considered “small balance accounts” and not that profitable. That means many professionals aren’t presenting the importance and value of IRAs to women as aggressively as they perhaps could.​

More important, women are missing the bigger picture when it comes to their retirement and a stable financial future. Women simply are not saving enough and then seem surprised when retirement and financial insecurity is at the door step. A top concern of women moving into retirement years is to not become a burden on their children. And, yet, they often have not taken the steps necessary to remain independent.

Only then do women realize the implications of not owning their own money. On the balance sheet of life, married women are often left feeling off-balance.

IRAs are Too Important to be Ignored

Like the “incredible, edible” egg, IRAs are a key ingredient to a woman’s financial future. IRAs have a storied past, starting humbly in 1974 as an auxiliary savings account for workers. Tax law changes in 1982 allowed contributions into an IRA to be tax deductible for everyone while the earnings on investments were tax deferred until taken out at retirement. Americans were enthusiastic and embraced the IRA which became the hot new financial toy until 1986, the last year of universal tax deductions.

But there is a quirky little part of the story no one seems to remember: the only people who could contribute to the first IRAs were those who earned wages. But what about all of the women who were working at home for hugs and kisses, for an organized household, for the well-being of the family? They were not earning a paycheck. At-home moms were an afterthought.

It took 24 years—nearly two and a half decades—to finally make IRAs equitable for all. Starting in 1998, both spouses could make contributions up to $2,000 per person to their own IRAs, so long as one of the spouses was working and earning income. By this time, however, the enthusiasm for IRAs had dropped off a cliff because most folks didn’t meet the qualifications for a tax-deductible IRA.

Sadly, Americans seem to be overly caught up in making financial decisions based heavily upon tax considerations. While it is advantageous to get tax breaks for solid financial actions, these breaks shouldn’t be the only criteria. Married women, in particular, lost sight of the incredible value an IRA can have on their retirement savings. IRAs are still tax-advantaged savings vehicles with earnings growing tax-deferred until the time money is withdrawn. (Roth IRAs offer even better advantages such as tax-free distributions at retirement.) But more important, IRAs are individually owned and managed accounts. That means only the owner controls this money. The owner independently decides how to spend it and how much to take out. And, the owner decides to whom the IRA assets will pass at the owner’s death.

There is no such thing as a “joint IRA.” Retirement accounts simply don’t work that way. The IRAs that you own are yours exclusively. They don’t have to be filled to the brim with money, although that is always nice if you can save the maximum amounts (see side bar for contribution amounts). Having any amount of your own money gives you a sense of worth, especially if you are the woman who stayed home to raise a family and run the household. In that case, you will see years of zeroes on your Social Security statement at the point of retirement. But IRAs mean ownership. That money is yours and it gives you some financial standing in the household.

Considering a “Joint” Retirement

Retirement plans are often misunderstood by both women and men. Let’s take the situation where a married couple divvies up the household duties along what are considered more traditional lines. The man works outside the home, and the woman works inside the home. He saves for retirement in an employer plan such as a 401(k) or 403(b). He is the sole owner of that retirement account. During his working years, he is in control of this account including making the decisions for how much goes in, how the money is invested, and when money comes out.

There are typically controls on the movement of retirement assets out of the plan, but that is not always the case. However, in most large plans, the non-owner spouse is supposed to be required to sign an agreement that the plan assets can move out of the plan and into an IRA. In a nutshell, she is asked to sign away any rights she would otherwise have to these retirement assets.

Remember that an IRA is owned by one single individual. If the husband changes jobs or retires and decides to move all the retirement assets from the plan, it can only be moved to his IRA or another employer’s plan under his individual name. These assets cannot be split up and allocated between the spouses.

The bottom line is that all the retirement assets in this situation are his assets. He owns 100% of the retirement assets; she owns 0%. That result may not be the intention, but it is the reality.

Now, what about the situation where the wife has worked at least some of the time, but didn’t earn nearly the income that her husband (or wife, in case of a same-sex marriage) did? She may have had the opportunity to save in her own 401(k) or 403(b). That’s great because she now has ownership of some retirement assets. But, is the amount significantly less? In this case, yes. The balance may be tipped 80 “him” to 20 “her”. That’s a start, but the balance sheet remains unbalanced.

The intent, of course, with married couples is that his retirement money is “our” money. But under the law, this is not the case. Retirement accounts sponsored by employers are owned by individual employees. IRAs are owned by individuals. Social Security benefits are paid to individuals. There is no such thing as a “joint” retirement account which makes it even more important for married women to have their own accounts.

The Tax Mistake Women Are Making

Financial decisions are often tied to tax benefits. Why are employer plans so large and popular? They offer excellent tax advantages for both the company to offer such plans to individual employees to save and invest in them. Why are Health Savings Accounts gaining in popularity? In large part because of the triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualifying medical expenses.

When IRAs were tax-deductible, millions of Americans made contributions into them. It was clear that the tax advantages were the primary reason for opening an IRA and the saving for retirement the secondary reason. Where we’ve missed the boat goes back to the importance of owning and controlling money. Not enough married women own enough money. Women don’t notice this as a financial hole or feel they are at a loss during the busy years of running households and raising children. But come retirement time, the reality sinks in that women don’t have the level of independence they should.

When a person owns an IRA, whether it is tax deductible or not, it’s a good way to save something for retirement. But it’s the hidden value of this investment account that matters most to women. And, it doesn’t show up on a 1040 form. ​The true value of an IRA, traditional or Roth, SEP or SIMPLE (two types of IRAs offered by small business owners), is that it offers financial independence, power and control of your money. Those might just be considered much more important reasons to have an IRA than to get a small tax deduction.

Taking the Next Step

There’s truly no time like today to improve your road to financial stability. Married or formerly married women are at a particular disadvantage as they typically have much less saved for retirement than their spouse has. They fear becoming dependent on their children, yet haven’t taken important steps to avoid that future.

The steps are relatively painless, yet critical:

1) Open an IRA today if you don’t already have one. Choose any top-rated financial institution or bank that offers IRAs. In most cases, you can open an account online or walk into a local branch. It takes less than 20 minutes in most cases.

2) Figure out how much you can save for your retirement in the IRA. Make a single contribution by the tax-filing deadline or set up monthly installments to be on “auto-pilot”.

3) Take a look at your Social Security statement (find your most current one at SSA.gov/mySocialSecurity) and see your earnings history on a single page. It might surprise you!

4) Set up or review your household balance sheet. Do you have a sufficient amount of assets in your name? Are you happy with the division of assets?

5) Talk to your husband or wife about funding retirement. How will you create a “joint” retirement from a series of individual accounts?

And, make sure that view from your front porch is everything you’d hoped it would be.

More Information for the 2017 IRA Season:

How much can I contribute to my IRA?

Contributions to IRAs are limited to a specific dollar amount each year. At least one spouse must have enough earnings to cover the contribution you are making. Check other qualifying rules in IRS Publication 590-A Contributions to Individual Retirement Arrangements (IRAs).

For the 2016 tax year:

You have until April 17, 2017 to make a contribution to your IRA

You can contribute up to $5,500 or up to $6,500 if you are 50 or older

For the 2017 tax year:

You’ll have until next April, 2018 to make contributions

You’ll be able to contribute up to $5,500 or up to $6,500 if you are 50 or older

If you want to do monthly contributions, you can set up “auto-pay” from a checking or savings account. That amounts to about $450 per month or about $540 per month if you are 50 or older

Saving even $50 or $100 or $250 each month matters. It’s about saving something in your own account for your retirement can make all the difference.